While many people understand the basics of life insurance, like the need for coverage and the importance of paying premiums, there’s one key aspect that policyholders may be unfamiliar with: the face value of the policy. The face value, also known as the death benefit, is the amount of money that will be paid out to your beneficiaries upon your death.
Understanding the face value of a life insurance policy helps ensure your loved ones have enough financial support in the event of your death and allows you to stay informed as you shop for coverage. In this article, we’ll help you understand what the face value of a life insurance policy is, why it’s important, and how to identify it so you can find the right amount of coverage for your unique needs.
What is the face value of life insurance?
The face value of a life insurance policy refers to the total amount of coverage that your beneficiaries will receive in the event of your death. Commonly called a death benefit, this amount is essentially the financial protection provided by the policy. Understanding the face value of your life insurance policy is crucial because it directly impacts the financial future of your loved ones and determines the amount of money that will be available to your beneficiaries to cover expenses such as funeral costs, outstanding debts, mortgage payments, education expenses, and daily living expenses. The face value of your policy can also impact the cost of the premiums you pay since a higher amount of coverage can raise the cost of your monthly rates.
How does the face value of a life insurance policy work?
The face value of a life insurance policy is typically determined at the time of purchase. It’s based on several factors, including your age, health condition, lifestyle choices, and desired coverage amount. It's important to note that the face value remains fixed throughout the term of the policy unless you opt for a policy with a flexible death benefit. This means that even if your health deteriorates over time, your policy’s death benefit will remain unchanged, providing a stable source of financial protection for your loved ones. In addition to the death benefit, you may add riders to your policy, which is a type of supplement benefit that allows you to customize your coverage.
Is the face value the same as the policy’s cash value?
It’s important to understand the distinction between the face value and the cash value of your life insurance policy. While the face value of a life insurance policy is the amount of money that will be paid out to beneficiaries upon the death of the insured, the cash value of a life insurance policy is the accumulated savings or investment component of certain types of policies, such as whole life or universal life insurance. It grows over time as premiums are paid and can be accessed or borrowed against during the policyholder’s lifetime. Unlike the face value, the cash value is not automatically paid out to beneficiaries upon your death.
Find a Life Insurance Policy with the Face Value You Need with SelectQuote
Understanding the face value of your life insurance policy may seem confusing, especially if you’re comparing coverage from several different carriers. Fortunately, SelectQuote is here to help. We make it easy to compare rates from several of the nation’s most trusted carriers in just minutes, allowing you to find a policy that offers the death benefit you need at a price you can afford.
